Wednesday, October 24, 2018

South Korea Seek to Impose a Digital Tax on Tech Majors

The Government of South Korea is moving quickly to impose taxes on major technology firms like Google, Apple, Amazon, and other global IT companies, joining a similar movement in Europe.

American tech majors have so far avoided taxes on profits that traditional brick-and-mortar companies and local platform companies pay because they lack a physical presence in the countries for which they provide their services. Currently, they are taxed on profits where they have their headquarters or servers, which are often countries with low tax rates.

In a recent parliamentary audit concluded on October 19, Korea’s Finance Minister and Deputy Prime Minister, Kim Dong-yeon, suggested higher taxes on tech majors are in order, as they are exempt from corporate tax in the country even while generating billions of dollars in revenue every year.

According to the Korea Times report published in August 2018, "In 2017, Korean portal giant Naver reported 4.68 trillion won in revenue and paid about 400 billion won in corporate tax, whereas Google Korea reported 260 billion won in revenue and paid 20 billion won in taxes. But industry observers estimated Google Korea earned 4.9 trillion won in revenue last year, much higher than what it officially reported."

In September 2018, Led by Rep. Byun Jae-il of the governing Democratic Party of Korea, 10 lawmakers submitted a bill to force global content providers to set up their servers in the country, by imposing fines worth up to 3% of their revenues if they do not follow the regulation. The bill aimed at "creating a level playing ground" and resolving the "reverse discrimination" problem in Korea’s information and communication technology sector, which apparently targets Google, Facebook, and Apple, which run servers outside the country.

The bill was introduced in response to an incident last year in which Korean users experienced a slowdown with Facebook’s services due to a spat between the social network operator and local telecom companies, as they negotiated network maintenance and operational cost arrangements.

Chart Attribute: This statistic shows the number of Facebook users in South Korea from 2015 to 2022. In 2019, the number of Facebook users in South Korea is expected to reach 15.13 million, up from 14.5 million in 2017. / Source: Statista; Statista DMO

Currently, all global IT giants that provide services in Korea but have a server overseas are subject to value-added tax (VAT) but not corporate tax. "Getting companies like Google to pay their fair share of tax has been difficult," Kim Dong-yeon said. "We’re reviewing a new set of tax rules including corporate tax."